DUAL CONVERGENCE OR HYBRIDIZATION? INSTITUTIONAL...

CEU Political Science Journal. Vol. 6, No. 1

47

DUAL CONVERGENCE OR HYBRIDIZATION? INSTITUTIONAL CHANGE IN ITALY AND GREECE

FROM THE VARIETIES OF CAPITALISM PERSPECTIVE Andreas Kornelakis

London School of Economics

Abstract1

The article tracks institutional changes within two central spheres

for Varieties of Capitalism (VoC) theory: the industrial relations

system and the finance/corporate governance system. Italy and

Greece are examined in comparative perspective vis-à-vis CME

and LME paradigm cases. The review of recent developments

reveals that while industrial relations in both countries show signs

of greater coordination, the finance/corporate governance system

acquired increasingly liberal market characteristics. Thereby, this

analysis casts doubt to the dual convergence thesis, arguing that

the hybrid character of the two countries was exacerbated over

the last two decades.

Keywords: corporate governance, industrial relations,

comparative political economy, Greece, Italy.

1. Introduction

For the last two decades, scholarly work in comparative political

economy has been dominated by the Varieties of Capitalism

(VoC) literature. Among other things, this strand of literature re-

launched with vigor the debate between convergence and

divergence. The essence of the convergence thesis was that

countries will eventually get into a common trajectory following a

1 An earlier version was presented at the 5th CEU Graduate Social Sciences Conference (Budapest,

19-21 June 2009) and at the 4th LSE Hellenic Observatory PhD Symposium (London, 25-26 June 2009).

Detailed feedback from Christa van Wijnbergen (LSE), Kevin Featherstone (LSE), and two anonymous

referees has been very helpful in revising this article. I also thank Waltraud Schelkle (LSE), Marco Simoni

(LSE), and Thomas Fetzer (CEU) for their comments. Financial support from Bodossaki Foundation and LSE is

gratefully acknowledged. Any remaining errors are my own.


48

single ―logic of industrialism‖2. The same thesis appeared in the

early 1990s within the context of the globalisation debate,

foreseeing convergence to the Anglo-Saxon model of capitalism.

Contributions from the VoC literature provided a counterweight to

easy arguments about globalisation and refuted the idea of an

imminent convergence to a single model3. Instead, they argued

that there are more than one ways to achieve high performance

in the global economy. The subsequent debate was largely

structured around the two successful models of capitalism:

Coordinated Market Economies (CMEs) and Liberal Market

Economies (LMEs).

A landmark publication by Hall and Soskice4 elaborated on

specific institutional complementarities that countries derive from

the tight coupling of a set of institutions. Complementarities

denote a functional interdependence between different

institutional domains including the industrial relations system and

the system of finance and corporate governance. Hall and Soskice

argued that when these institutions cluster together in specific

combinations, then they are able to produce increasing returns

and contribute to high economic performance.

As a result of the above conceptualisation, VoC effectively

replaced the (single) convergence thesis with a dual convergence

thesis allowing for two options –rather than the no alternative

type of argument. The pressures from globalisation and

liberalisation are expected to accentuate the differences between

LMEs and CMEs. The interesting question that this raises is what

will happen to cases (countries) that lie in an ambiguous position?

2 Clark Kerr, John Dunlop, Frederick Harbison and Charles Myers, Industrialism and Industrial Man

(Cambridge; Mass: Harvard University Press, 1960).

3 Colin Crouch, ―Models of Capitalism‖ New Political Economy, 10 (Dec 2005):439-456; Wolfgang

Streeck and Kathleen Thelen ―Introduction: institutional change in advanced political economies‖ in Beyond

continuity: institutional change in advanced political economies, eds idem (Oxford: Oxford University Press,

2005), 1-39.

4 Peter Hall and David Soskice ―An Introduction to Varieties of Capitalism‖, in Varieties of

Capitalism: institutional foundations of comparative advantage, eds., idem (Oxford: Oxford University Press,

2001), 1-68.


49

Southern European countries are hard to classify as LMEs or

CMEs. Later works in the literature grouped the cases of Greece,

Italy, Portugal, Spain and France under a new ideal-type: Mixed

Market Economies (MMEs).5 The common thread linking these

cases is that they lack the institutional cohesion of LMEs or CMEs

(i.e. they are construed as hybrids) and certainly lack the crucial

complementarities which are necessary for high performance. As

will be argued below, these countries are ―hard cases‖ for

propositions of institutional change, and therefore, appropriate to

assess the plausibility of the dual convergence hypothesis.

The main research question of this article is whether institutional

change in Italy and Greece is taking place in line with the

expectations of the dual convergence hypothesis. If the

hypothesis is plausible, then we should expect to see these cases

changing unambiguously towards the LME or the CME direction.

The article shows that institutional change in the two countries is

not taking place along these expectations. Despite common

pressures from globalisation and liberalisation, industrial relations

are becoming more coordinated and corporate

governance/finance more liberal. The core insight of this paper is

that different institutions may be changing in different directions,

and this should be taken into account in the academic debate

over institutional change. The empirical part documents this

possibility with evidence from Italy and Greece, which are

examined in comparative perspective vis-à-vis Germany and

Britain. The latter pair provides two imperfect proxies of the CME

and LME ideal-types, respectively.

The rest of the article is structured as follows. The next section

discusses the main works in the convergence/divergence debate.

It also substantiates the interpretation of the VoC framework as

having the observable implication of the ―dual convergence‖

thesis. The third section examines earlier works on Southern

Europe from a VoC perspective. This section aims to delineate the

5 Bob Hancké, Martin Rhodes and Mark Thatcher, ―Introduction: Beyond Varieties of Capitalism‖ in

Beyond Varieties of Capitalism: Conflict, contradiction and complementarities in the European Economy, eds.

idem, (Oxford: Oxford University Press, 2007), 3-38.


50

added value of the present article compared to previous

approaches. Additionally, it justifies why Italy and Greece can be

construed as ―hard cases‖ for claims of institutional change,

especially in the spheres of industrial relations and corporate

governance. The fourth section explores changes in the industrial

relations sphere, while the fifth section tracks changes in the

realm of finance/corporate governance. The evidence examined

show that the former has moved closer to the coordinated type,

whereas the latter has become more liberalized. The final section

summarises the main argument of increased hybridization and

discusses the wider implications of this analysis.

2. Convergence, Divergence and Dual Convergence across

Varieties of Capitalism

The debate between convergence and divergence theorists is

probably as old as social science itself. Marx, for example,

predicted the inevitable self-destruction of the capitalist system

and the convergence to a socialist system, in which the state

would eventually wither away. A team of Harvard institutional

labour economists addressed that prediction in the 1960s and

argued against Marxian convergence; they claimed, instead, that

advanced capitalist countries are likely to converge to a single

model of ―pluralistic industrialism‖.6 Several years later, a team of

scholars under the auspices of John Goldthorpe challenged the

Harvard‘s team idea of convergence to pluralistic industrialism,

highlighting the corporatist responses of Western European

countries.7

The convergence argument reappeared in the 1990s within the

wider globalization debate. A series of popular and polemical

works led the discussion, putting forward the proposition that

pressures from globalization will force different countries to

6 Clark Kerr et al., Industrialism and Industrial Man (Cambridge; Mass: Harvard University Press,

1960).

7 John Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon, 1984).


51

converge to the Anglo-Saxon model of capitalism.8 This vision

was shared by International Political Economy scholars, who

recognised the potential for clash between different models of

capitalism9 and argued that global market integration pushes

countries towards convergence10. Thereby, convergence to a

single neo-liberal model gained credence in literature (Figure 1).

Figure 1. The Single Convergence Thesis

Source: Hay, "Common Trajectories, Variable Paces, Divergent Outcomes?‖, 234.

8 Michel Albert, Capitalism against Capitalism (London: Whurr, 1993), Will Hutton, The State We‘re

In (London: Jonathan Cape, 1995), Lester Thurow, Head to Head: The Coming Economic Battle among Japan,

Europe, and America (London; New York: Brealey; Morrow, 1992).

9 Robert Cox, "Global Restructuring: Making Sense of the Changing International Political

Economy," in Political Economy and the Changing Global Order, ed. Richard Stubbs and Geoffrey Underhill

(Basingstoke: Macmillan, 1994), 49.

10 Susan Strange, "The Future of Global Capitalism; or, Will Divergence Persist Forever?," in Political

Economy of Modern Capitalism, ed. Colin Crouch and Wolfgang Streeck (London: Sage, 1997), 182.


52

In response to these arguments, scholars from Comparative

Political Economy developed an alternative vision of ―divergence‖.

They showed that similar pressures are mediated differently

across models of capitalism, and refuted the neo-liberal

convergence thesis.11 According to Colin Crouch, one of the main

accomplishments of this literature is that it provided an

―intellectual counterweight to easy arguments about

globalization‖.12

The landmark publication by Hall and Soskice13 put forward two

main types of political economies: CMEs and LMEs. Importantly, it

elaborated on specific ―institutional complementarities‖ that

different models derive from the tight coupling of their institutions

and argued that these complementarities give rise to comparative

advantages, which are reinforced in the context of globalization.

While Hall and Soskice do not speak explicitly of a ―dual

convergence‖ thesis, if we are to follow King et al. methodological

suggestion of testing the ―observable implications of a theory‖14,

then this thesis (Figure 2) is such an observable implication of the

VoC theory.

This interpretation is shared by other scholars in the literature.15

Most notably, Colin Hay in an article in the prestigious Review of

International Political Economy writes:

11 Suzanne Berger and Ronald Dore, eds., National Diversity and Global Capitalism (Ithaca: Cornell

University Press, 1996), Colin Crouch and Wolfgang Streeck, eds., Political Economy of Modern Capitalism

(London: Sage, 1997), Herbert Kitschelt et al., eds., Continuity and Change in Contemporary Capitalism

(Cambridge: Cambridge University Press, 1999), Kathleen Thelen and Christa van Wijnbergen, "The Paradox

of Globalization: Labor Relations in Germany and Beyond," Comparative Political Studies 36, no. 8 (2003).

12 Colin Crouch, "Models of Capitalism," New Political Economy 10, no. 4 (2005): 439.

13 Peter Hall and David Soskice, "An Introduction to Varieties of Capitalism," in Varieties of

Capitalism: Institutional Foundations of Comparative Advantage, ed. Peter Hall and David Soskice (Oxford:

Oxford University Press, 2001).

14 Gary King, Robert Keohane, and Sidney Verba, Designing Social Inquiry: Scientific Inference in

Qualitative Research (Princeton; NJ: Princeton University Press, 1994), 208.

15 Marc Blyth, "Same as It Never Was: Temporality and Typology in the Varieties of Capitalism,"

Comparative European Politics 1, no. 2 (2003): 15, Waltraud Schelkle, "Collapsing Worlds and Varieties of

Welfare Capitalism: How to Step out of Weber's Long Shadow," Oxford Centre for the Study of Inequality and

Democracy Working Paper Series, no. 01 (2008): 4.


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Altogether more sophisticated theoretically, altogether more

exhaustive empirically, and increasingly influential in contemporary debates is the so-called „dual‟ or „co-convergence thesis‟ advanced by a range of prominent neo-institutionalists ... This perspective represents perhaps the most systematic attempt to date to explore, expose and detail the institutional mechanisms involved in process(es) of convergence and divergence.…16

Figure 2. The Dual Convergence Thesis

Source: Hay, "Common Trajectories, Variable Paces, Divergent

Outcomes?‖, 236.

16 Colin Hay, "Common Trajectories, Variable Paces, Divergent Outcomes? Models of European

Capitalism under Conditions of Complex Interdependence," Review of International Political Economy 11, no.

2 (2004): 235-6.


54

The dual convergence thesis starts from the assumption that

there are two main political economic models (LMEs and CMEs)

capable of achieving high performance in the new global

environment. The pressures from neo-liberal globalization and

liberalization are expected to accentuate the differences between

the two models forcing mid-spectrum cases to converge to either

political-economic model.

One could reasonably wonder: what are the scope conditions of

VoC theory? In other words, should we at all expect that other

countries (be they Italy, Estonia or Uganda) will converge with

one of the models? Hall and Soskice were very clear that their

theory encompasses advanced industrialised countries defined as

―large OECD nations‖.17 As a result, it is questionable whether a

country like Estonia is within VoC scope conditions, while a

developing country like Uganda is likely out of bounds.

Still, the literature in the last decade has expanded the universe

of cases in such a way that the above demarcation is blurred. On

the one hand, Schneider and Soskice applied the VoC perspective

to Latin American countries (which are not OECD members except

for Mexico and very recently Chile) dubbing them as ―Hierarchical

Market Economies‖.18 On the other hand, several works19 applied

or challenged the VoC perspective using cases from Central and

Eastern Europe, looking at both OECD members (Czech Republic,

Hungary, Poland), and non-members (Estonia, Slovenia,

Ukraine). Nonetheless, Southern European countries like Italy

and Greece that have been OECD members since the 1960s, have

17 Hall and Soskice, "An Introduction to Varieties of Capitalism," 19.

18 Ben Ross Schneider and David Soskice, "Inequality in Developed Countries and Latin America:

Coordinated, Liberal and Hierarchical Systems," Economy and Society 38, no. 1 (2009).

19 Dorothee Bohle and Béla Greskovits, "The State, Internationalization, and Capitalist Diversity in

Eastern Europe," Competition & Change 11, no. 2 (2007), Magnus Feldmann, "The Origins of Varieties of

Capitalism: Lessons from Post-Socialist Transition in Estonia and Slovenia," in Beyond Varieties of Capitalism,

ed. Bob Hancké, Martin Rhodes, and Mark Thatcher (Oxford: OUP, 2007), Vlad Mykhnenko, "Strengths and

Weaknesses of 'Weak' Coordination: Economic Institutions, Revealed Comparative Advantages and Socio-

Economic Performance of Mixed Market Economies in Poland and Ukraine," in Beyond Varieties of Capitalism,

ed. Bob Hancké, Martin Rhodes, and Mark Thatcher (Oxford: OUP, 2007).


55

been capitalist economies for decades also have a long

experience of EU membership. Therefore, they fall definitely

within VoC scope conditions. The next section reviews in more

detail earlier works on Southern European countries that shared

this VoC angle.

3. Southern Europe among Varieties of Capitalism

3.1. Southern Europe as a Distinct Variety of Capitalism

Interestingly, Hall and Soskice allowed for a third variety of

capitalism in their initial contribution, foreshadowing what would

later be dubbed as ―Mixed Market Economies‖:

‗[Six countries are left]…in more ambiguous positions (France, Italy, Spain, Portugal, Greece, and Turkey). However, the latter show some signs of institutional clustering as well, indicating that they may constitute

another type of capitalism, sometimes described as „Mediterranean‘ (emphasis added). 20

While Hall and Soskice did not elaborate on this third type, other

scholars concurred with this argument. They maintained that

these countries are likely to belong to a distinct variety of

capitalism termed as Mediterranean or Southern European.21

Working within the initial Hall and Soskice framework, recent

work has elaborated more on the characteristics of this third

variety of capitalism dubbing the term ―Mixed Market Economies‖

and including the cases of Italy, Greece, Spain, Portugal and

France.22

20 Hall and Soskice, "An Introduction to Varieties of Capitalism," 21.

21 Bruno Amable, The Diversity of Modern Capitalism (Oxford: Oxford University Press, 2003),

Richard Hyman, "Varieties of Capitalism, National Industrial Relations Systems and Transnational Challenges,"

in International Human Resource Management., ed. Anne-Wil Harzing and Joris van Ruysseveldt (London:

Sage, 2004).

22 Bob Hancké, Martin Rhodes, and Mark Thatcher, "Introduction: Beyond Varieties of Capitalism," in

Beyond Varieties of Capitalism, ed. Bob Hancké, Martin Rhodes, and Mark Thatcher (Oxford: OUP, 2007), 23,

Oscar Molina and Martin Rhodes, "The Political Economy of Adjustment in Mixed Market Economies: A Study


56

In Mixed Market Economies the logic of coordination is mixed

(both market and non-market), the state has a distinctive

―compensatory role‖ while the emphasis in on the ―misfit‖

between institutions. The ―misfit‖ denotes a deviation from the

institutional clustering observed in coherent cases like LMEs and

CMEs and results in an absence of ―institutional

complementarities‖. In their analysis the authors conceptualize

the new ideal-type as a ―hybrid‖ that is bound to under-

perform.23

Apart from the above works offering a grand ideal-type to

accommodate Southern European cases, there are more specific

Southern European country-studies with a VoC angle. The next

section reviews the approach, areas covered and conclusions of

those studies, establishing what the added value from the present

article is.

3.2. Southern European Country-Studies from a VoC

Perspective

One of the earliest attempts to look at Southern European

countries from a VoC perspective is Regini‘s attempt to depict the

Italian variety of capitalism.24 Regini follows a micro-level

approach; his primary focus is the production system and the

product market strategies that Italian firms utilize. He maintains

that ―flexible specialization‖ is the production strategy pursued in

the Italian industrial districts, revealing comparative advantage

―particularly in certain niche productions in clothing and

textiles‖.25 He then relates the institutional environment to the

production system and argues that the combination of ―weak

institutional regulation‖ and ―unstable voluntaristic regulation‖

of Spain and Italy," in Beyond Varieties of Capitalism, ed. Bob Hancké, Martin Rhodes, and Mark Thatcher

(Oxford: OUP, 2007), 225-27.

23 Ibid., 225-27.

24 Marino Regini, "Social Institutions and Production Structure: The Italian Variety of Capitalism in

the 1980s," in Political Economy of Modern Capitalism, ed. Colin Crouch and Wolfgang Streeck (London: Sage,

1997).

25 Ibid., 105.


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explain why this type of production strategy was the most

prosperous.26 Finally, he concludes that Italy is not an

intermediate case between Rhenish and Anglo-Saxon capitalism;

instead, it comprises a distinct model of capitalism.27

Della Sala also looks at the Italian model of capitalism but takes a

macro-level approach.28 Della Sala reviews developments in two

domains: finance/corporate governance and the industrial

relations/labour markets. He observes that Italy has adopted

elements of both LMEs and CMEs. On the one hand, reforms took

place towards the direction of liberalizing industrial policy,

increasing the importance of equity markets, and greater

diffusion of corporate ownership. On the other hand, more

concertation through social pacts has been introduced in

industrial relations. Della Sala concludes that Italy remains a

dysfunctional state capitalism model. His approach has the

advantage that it makes sporadic ,but not systematic,

comparisons with LMEs and CMEs, but it does not engage with a

discussion of the implications for the dual convergence thesis.

Zambarloukou also considers Greece from a VoC prism.29 In a

2006 article she reviews efforts of concertation at the industrial

relations system during the 1990s. She claims that Greece is

closer to what has been termed ―state capitalism‖, while her

explanation for the absence of social pacts in Greece dwells on

―the lack of trust between the social partners‖ and ―the absence

of a culture that promotes dialogue and consensus‖.30 In her

approach there are sporadic comparisons with the experience of

social pacts in other countries especially Italy. But her study

focuses on only one realm (industrial relations) and does not

attempt to look at other institutional domains as the VoC

26 Ibid., 105.

27 Ibid., 116.

28 Vincent Della Sala, "The Italian Model of Capitalism: On the Road between Globalization and

Europeanization?," Journal of European Public Policy 11, no. 6 (2004).

29 Stella Zambarloukou, "Collective Bargaining and Social Pacts: Greece in Comparative

Perspective," European Journal of Industrial Relations 12, no. 2 (2006).

30 Ibid.: 215-21.


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framework would require. Finally, Zambarloukou does not offer

any quantitative indicators on collective bargaining centralisation

or coordination.

Royo also looks only at the industrial relations realm when

examining the Spanish model of capitalism.31 He reveals some

notable cases of cooperation between firms, unions and regional

governments in Valencia, Castellon, Basque, Catalonia and

Madrid. His conclusion is that the ―trajectory of change [in Spain]

parallels developments in CMEs more closely than those in

LMEs‖.32 In contrast, Molina and Rhodes claim that in Spain

―waves of liberalization and state retrenchment, have tended to

reinforce sub-system complementarities in an LME direction‖.33

Finally, Molina and Rhodes examine Italy and Spain in

comparative perspective with a special focus on two institutional

domains: the welfare regime and the production regime. The

choice of two domains reflects more closely the VoC framework.

For Italy they conclude it has achieved greater ―autonomous

coordination‖ and less ―market colonization‖ and explain this

development on the basis of a ―more even balance of power‖

between labour and capital.34 The comparison between Italy and

Spain is supplemented with systematic indicators from CMEs and

LMEs. Thus, they provide better evidence to support their

conclusion that Spain has moved towards an LME direction.

To conclude, the value of the present article is that it combines

the strengths of previous approaches. This article shares with

Della Sala the focus areas covered: industrial relations and

corporate governance/finance system. However, the approach

reflects more the Molina and Rhodes contribution, tracing

developments in two Mixed Market Economies (Italy and Greece)

31 Sebastián Royo, "Varieties of Capitalism in Spain: Business and the Politics of Coordination,"

European Journal of Industrial Relations 13, no. 1 (2007).

32 Ibid.: 49.

33 Molina and Rhodes, "The Political Economy of Adjustment in Mixed Market Economies: A Study of

Spain and Italy," 248.

34 Ibid., 17-18.


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and pursuing a systematic comparison with LMEs and CMEs. A

final novelty of this article is that it presents new data (such as

the composite indicators from the ICTWSS database) which

reflect as closely as possible the institutional variables highlighted

by VoC theory.

3.3. Italy and Greece: “Hard Cases” for Institutional

Change

According to Hall & Thelen, Southern European countries (MMEs)

are considered as ―hard cases‖ for propositions of institutional

change.35 Mixed Market Economies like Italy and Greece lack a

coherent institutional arrangement and are construed as hybrids.

If the dual convergence thesis is theoretically plausible, then we

should expect to see hybrid cases changing towards the one

(LME) or the other (CME) direction.

VoC theory maintains that globalization reinforces the

complementarities in the institutionally coherent models (LMEs

and CMEs). In contrast, countries characterised by institutional

incoherence (MMEs) are bound to be affected by global changes:

they are likely to be less resistant to pressures from globalization

and liberalization, and we should expect them to be moving

closer to one of the two ideal-types. Therefore, they are most

appropriate for a ―plausibility probe‖ to the dual convergence

thesis. 36

The choice of industrial relations and corporate

governance/finance realms is theoretically motivated. Höpner has

pinned down the importance of those two domains for the

development of CME-type and LME-type institutional

complementarities.37 Further, Hall and Gingerich38 have used

35 Peter Hall and Kathleen Thelen, "Institutional Change in Varieties of Capitalism," Socio-Economic

Review 7, no. 1 (2009): 26.

36 King, Keohane, and Verba, Designing Social Inquiry: Scientific Inference in Qualitative Research,

209.

37 Martin Höpner, "What Connects Industrial Relations and Corporate Governance? Explaining

Institutional Complementarity," Socio-Economic Review 3, no. 2 (2005).


60

these same two exact domains to compute the overall

coordination scores for LMEs, CMEs, and MMEs. In doing so, they

support the argument that these spheres are very good proxies

for the mapping of countries along capitalist models. Thus, if

there is a move towards more institutional coherence it should be

observable in those two critical institutional spheres. The next

section begins the examination of these two spheres by turning

first to industrial relations.

4. The Industrial Relations System

In the stylized picture of LMEs, collective bargaining is

decentralized and uncoordinated, industrial relations are

adversarial, the state intervenes very little in industrial relations,

and collective bargaining coverage is low. In the stylized picture

of CMEs, collective bargaining is centralised and coordinated,

industrial relations are cooperative, the state intervenes in an

enabling manner that facilitates the coordination, collective

bargaining coverage is high and workers enjoy strong shop-floor

rights such as co-determination. This section tracks developments

in those institutional variables within Italy and Greece, seeking to

gauge the direction of change during the last two decades.

4.1. Collective Bargaining Coordination & Centralization

The turning point for the industrial relations systems of both

countries is placed in the early 1990s. Across Italy and Greece a

re-organisation of collective bargaining framework took place

under coalition governments with the agreement of the social

partners. In Italy it was the tripartite agreement of July 1993

under the technocratic government of Ciampi, whereas in Greece

it was Law No.1876 of 1990 under the ecumenical government of

Zolotas.39

38 Peter Hall and Daniel Gingerich, "Varieties of Capitalism and Institutional Complementarities in

the Political Economy: An Empirical Analysis," British Journal of Political Science 39, no. 3 (2009).

39 Giannis Kouzis, "The Consequences of E.M.U. For Industrial Relations: The Case of Greece," in The

Impact of E.M.U. On Industrial Relations in European Union, ed. Timo Kauppinen (Helsinki: Finnish Labour


61

In the recent literature on social pacts, Italy has been portrayed

as an exemplary case, with the 1990s delivering a series of social

pacts that re-invigorated neo-corporatist concertation.40 However,

the nature of concertation in the 1990s has been very different

from the 1970s and was therefore dubbed ―competitive

corporatism‖.41 On the one hand, the stick and carrot of EMU

entry forced national governments to strike coalitions with

organised interests, taking measures to reduce budget deficits

and lowering inflation through wage restraint. On the other hand,

pressures from demographic change and rising unemployment

guided the content of social pacts towards reform of pension

systems and labour markets.

At first sight, Greece contrasts sharply with a poor record of only

one social pact in 1997 and several failed attempts in social

dialogue with respect to the reform of labour market and pension-

system.42 However, if one looks at developments in the collective

bargaining system, a more nuanced picture emerges. Notably,

the national biennial collective bargaining agreements ―have

operated as functional equivalents to social concertation‖.43

Indeed, this point can be justified on several grounds.

To begin with, social pacts in Italy can be construed as the

―national level‖ of bargaining, in which the three44 major trade

Relations Association, 1998), Marino Regini and Ida Regalia, "Employers, Unions and the State: The

Resurgence of Concertation in Italy?," West European Politics 20, no. 1 (1997).

40 Regini and Regalia, "Employers, Unions and the State: The Resurgence of Concertation in Italy?,"

210-30.

41 Martin Rhodes, "The Political Economy of Social Pacts: ‗Competitive Corporatism‘ and European

Welfare Reform," in The New Politics of the Welfare State, ed. Paul Pierson (Oxford: Oxford University Press,

2001).

42 Kevin Featherstone and Dimitris Papadimitriou, The Limits of Europeanization: Reform Capacity

and Policy Conflict in Greece (Basingstoke: Palgrave, 2008), Vassilis Monastiriotis and Andreas Antoniades,

"Reform That! Greece‘s Failing Reform Technology: Beyond ‗Vested Interests‘ and ‗Political Exchange‘," LSE

Hellenic Observatory Papers on Greece and Southeast Europe, no. 28 (2009).

43 Maria Karamessini, "Continuity and Change in the Southern European Social Model," International

Labour Review 147, no. 1 (2008): 49.

44 To be precise, some social pacts were not signed by the ex-communist/socialist CGIL.


62

union federations negotiate agreements with the government

and/or the employers. In Greece the collective bargaining system

provides by design a national level of bargaining. While its main

function is to set the minimum wages, other topics have been

negotiated at this level. Importantly, these topics have been

object of social pacts negotiations elsewhere. For instance, health

and safety issues were negotiated through social pacts in Portugal

but a pact on this issue was plainly unnecessary in Greece. Health

and safety issues were negotiated through national collective

bargaining in the mid-1990s and were eventually delegated to the

corporatist venue of the Institute for Health and Safety. Another

topic of negotiations has been the tax-system reform, which was

negotiated repeatedly through social pacts in Ireland. But the

same issue was successfully negotiated in Greece through

middle-level social dialogue committees in 2002, and the

agreement resulted in a new bill rather than a social pact.

Second, there were indeed failed attempts for ad hoc social

dialogue with respect to labour market and pension system

reform in Greece, while similar attempts were successful in Italy.

But failed attempts for ad hoc social dialogue are not unlikely,

even in more corporatist countries, for instance in Germany the

failure for Bündnis für Arbeit and in Sweden the failure for Allians

för Tillväxt. Moreover, the successful reform of the Italian pension

system should not strike as a surprising accomplishment. Trade

unions hold the majority in the board of directors of the institute

that manages pensions (INPS)45 and their consent would be

absolutely necessary for any reform.

The broader point made here is that trade unions in both

countries have abandoned much of their 1980s militancy,

adopting a more consensual discourse during the 1990s. By no

means does this imply that social dialogue has been solidly

embedded in Greek or Italian industrial relations. But it does

provide a more nuanced picture of developments in the industrial

relations realm, concurring with scholars observing a

45 Regini and Regalia, "Employers, Unions and the State: The Resurgence of Concertation in Italy?,"

215.


63

―transmutation‖ of state corporatism in Greece into an

increasingly ―neo-corporatist mode of interest representation‖.46

Figure 3. Coordination of Wage Bargaining 1990-2007

0,0

1,0

2,0

3,0

4,0

5,0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

DE

GR

IT

UK

Source: Data retrieved from ICTWSS Database, at: http://www.uva-aias.net/208 (accessed 25 January 2010).

The proliferation of social pacts in Italy and the consistent signing

of national collective agreements in Greece are reflected on

high(er) coordination and centralization scores for both countries‘

bargaining systems. Wage coordination has clearly increased in

Italy during the 1990s matching German levels, while Greece is

also depicted as having CME-levels of wage coordination (Figure

3).

46 George Pagoulatos, Greece's New Political Economy: State, Finance, and Growth from Postwar to

E.M.U. (New York: Palgrave Macmillan, 2003), 185.

http://www.uva-aias.net/208



64

Additionally, indicators of collective bargaining centralization

show a gradual increase throughout the 1990s with both Italy and

Greece moving closer to the German levels of centralisation,

moving further away from LME levels (Table 1).

Table 1. Collective bargaining Centralisation Index 1990 1995 2003

DE 0,48 0,47 0,47

GR na 0,33 0,39

IT 0,25 0,35 0,34

UK 0,12 0,13 0,13

Source: European Commission, Industrial Relations in Europe 2004, (Luxemburg: European Commission, 2004), 43. Available at: http://ec.europa.eu/social/main.jsp?catId=329&langId=en&furtherPubs=yes (accessed 25 January 2010).

4.2. Government Intervention and Industrial Conflict

Italy and Greece share a tradition of a statist and adversarial

industrial relations systems, with industrial conflict being an

endemic characteristic. Figure 4 tracks the level of industrial

conflict for the last two decades. Until 1998 the level of industrial

conflict in Italy and Greece stood at higher levels than that of

Germany or Britain. Still, if one compares these levels with data

from the 1970s-80s47, one can see that there is a trend towards

decline in strike activity and stabilisation at historically lower

levels by the late 1990s/early 2000s. This observation should be

qualified by the fact that strike statistics are unavailable for

Greece after 1998.

47 Nicos Kritsantonis, "Greece: The Maturing of the System," in Changing Industrial Relations in

Europe, ed. Anthony Ferner and Richard Hyman (Oxford: Blackwell, 1998), 525, Ida Regalia and Marino

Regini, "Italy: The Dual Character of Industrial Relations," in Changing Industrial Relations in Europe, ed.

Anthony Ferner and Richard Hyman (Oxford: Blackwell, 1998), 485.

http://ec.europa.eu/social/main.jsp?catId=329&langId=en&furtherPubs=yes

http://ec.europa.eu/social/main.jsp?catId=329&langId=en&furtherPubs=yes


65

Figure 4. Working Days Lost per Worker 1993-2007

0,00

50,00

100,00

150,00

200,00

250,00

300,00

1993 1995 1997 1999 2001 2003 2005 2007

Year

DE

GR

IT

UK

Source: Eurostat, Labour Disputes, available at: http://epp.eurostat.ec.europa.eu/portal/page/ portal/eurostat/ home/ (accessed 25 January 2010).

Furthermore, the role of the state has been historically very

important in the industrial relations systems of the two countries.

The state was involved in all possible ways: as an employer in the

extensive public sector, as a public mediator during industrial

disputes and as a legislator setting the institutional framework.

Figure 5 depicts government intervention in wage bargaining over

time. The high levels of government intervention in the early

1990s document the statist tradition in Italy and Greece.

However, throughout the 1990s both countries reduced the levels

of government intervention, with Italy matching the CME levels

encountered in Germany.

http://epp.eurostat.ec.europa.eu/portal/page/%20portal/eurostat/%20home/


66

Figure 5. Government Intervention in Wage Bargaining

1990-2007

0,0

1,0

2,0

3,0

4,0

5,0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

DE

GR

IT

UK

Source: Data retrieved from ICTWSS Database, at: http://www.uva-aias.net/208 (accessed 25 January 2010).

4.3. Collective Bargaining Coverage

A recurring theme in the scholarship on organized interests in

Southern Europe is the so-called ―representation problem‖ of

employees‘ and employers‘ associations. Most recently,

Matsaganis argued that Greek trade unions have acted as

―narrow interests‖ opposing reform of the (indeed) inegalitarian

pension system and contrasted them with their Italian




67

counterparts‘ involvement in pension reform.48 One may read into

this argument an underlying Olsonian logic of the role of ―narrow

interests‖, as opposed to ―encompassing interests‖, in

undermining public goods provision.49 As argued above, the mere

fact that Italian unions were involved in this reform should not

strike as a surprising accomplishment: pensioners comprise most

of Italian trade unions‘ membership and hold seats in the institute

that manages pensions.

Conventionally, the representation problem has been understood

through membership rates. For example, Scandinavian unions

with union density reaching nearly 100 per cent are considered

exemplary cases of encompassing trade unions. A corrective to

this view is brought by Philippe Schmitter, who argued that trade

unions in Southern Europe are more representative than their

membership rates would indicate, because of the legal extension

of collective agreements.50 Trade union membership in Greece

and Italy followed a declining trend in line with international

developments. Italian union density stood at 38.8 per cent in

1990 and settled to 33.8 per cent in 2005, while Greek union

density dropped from 37.5 in 1990 to 23 per cent in 2005.51 Still,

if one looks at collective bargaining coverage, the Greek and

Italian rates are even higher than the German rates.

Table 2 documents that trade unions in Italy and Greece

effectively represent 70-82 per cent of the salaried wage earners.

In addition, there are other actions which strongly show that

Italian and Greek unions have tried to embrace a more

48 Manos Matsaganis, "Union Structures and Pension Outcomes in Greece," British Journal of

Industrial Relations 45, no. 3 (2007): 537-55.

49 Mancur Olson, The Rise and the Decline of Nations: Economic Growth, Stagflation, and Social

Rigidities (New Haven; London: Yale University Press, 1982).

50 Philippe Schmitter, "Organized Interests and Democratic Consolidation in Southern Europe," in

The Politics of Democratic Consolidation: Southern Europe in Comparative Perspective, ed. Richard Gunther,

Nikiforos Diamandouros, and Hans-Jurgen Puhle (Baltimore; London: The Johns Hopkins University Press,

1995), 303.

51 Data from ICTWSS Database,© Jelle Visser,(University of Amsterdam, 2009) available at:

http://www.uva-aias.net/208.



68

―encompassing‖ type of behavior. Unions have tried to negotiate

non-wage issues, which do not necessarily cater the immediate

interests of their membership, but serve the interests of broader

constituencies of society. Such non-wage issues include: equal

opportunities policies and maternity leaves, training schemes and

healthcare provision for unemployed, regulation for those working

under flexible/precarious employment, and price stabilization

through wage restraint.52

Table 2. Collective bargaining Coverage (%) 2000 2006

DE 63 63

GR 70 70

IT 82 82

UK 36.3 35.3

Source: European Commission, Industrial Relations in Europe 2008,

(Luxembourg: European Commission, 2008), 75-78. Available at: http://ec.europa.eu/social/main.jsp? catId=329&langId=en&furtherPubs=yes (accessed 25 January 2010).

4.4. Concluding Remarks

This section considered changes in the industrial relations system

in Italy and Greece comparing key institutional variables with

those of Germany and the UK. The 1990s witnessed a burgeoning

activity in the realm of social pacts in Italy. In Greece the biennial

collective bargaining system is construed as the functional

equivalent of concertation. These changes are reflected in the

Italian and Greek coordination scores which match the German

ones, as well as the increased centralisation scores, which move

towards the German ones. Industrial relations in the 2000s are

characterised by reduced government intervention and lower

levels of industrial conflict, especially when compared to the

1980s. The review of the evidence provides support to the

52 Costanza Rodriguez-d'Acri, Alison Johnston, and Andreas Kornelakis, "The Role of Social Partners

in Bargaining over Non-Wage Issues across Austria, Greece and Italy," University of Edinburgh Working

Papers on the Reconciliation of Work and Welfare in Europe, no. 14/09 (2009): 17-23.


69

argument that the direction of institutional change in the

industrial relations realm is towards greater coordination.

However, one has to enter a caveat at this point. The general

argument from the above analysis is that there is move towards

more coordination at the macro-level of the industrial relations

sphere. By no means does this imply that the institutional sphere

has fully become CME-like. Instead, it is prudent to note that

there many residuals of a more hybrid character. In Greece, the

state retains its interventionist role, there appear centrifugal

tendencies in ―pattern setting‖ sectors such as banking and the

role of the arbitration and mediation service is challenged.53 In

Italy the political competition among trade unions has surfaced

recently and federations find difficulties in speaking with a single

voice.54 Lastly, strong shop-floor rights (such as co-

determination) are still missing in both countries which are so

crucial for the development of CME complementarities.

5. The Finance and Corporate Governance System

In the stylized picture of LMEs firms follow short-

term/shareholder-value corporate governance and rely heavily on

stock market funding or ―impatient capital‖. This is reflected on

dispersed ownerships and few cross-shareholdings, while minority

shareholder protection is high. In the stylized picture of CMEs,

firms follow long term/stakeholder-oriented corporate governance

and rely heavily on bank-based funding or ―patient capital‖. This

arrangement is reflected on concentrated ownerships and

increased cross-shareholdings, while minority shareholder

protection is low. This section tracks developments in three

observable institutional variables - financial system liberalization,

equity market importance, and minority shareholder protection –

53 Christos Ioannou, "‗Odysseus or Sisyphus‘ Revisited: Failed Attempts to Conclude Social-Liberal

Pacts in Greece," in After the Euro and Enlargement: Social Pacts in the E.U., ed. Philippe Pochet, Maarten

Keune, and David Natali (Brussels: ETUI/OSE, 2010).

54 Marco Simoni, "Labour and Welfare Reforms: The Short Life of Labour Unity in Contemporary

Italy," in Italy Today: The Sick Man of Europe, ed. Andrea Mammone and Giuseppe Veltri (London: Routledge,

2010).


70

seeking to gauge the direction of change within Italy and Greece

during the last two decades.

5.1. Liberalization of the Finance System

The traditional source of funding for firms across Italy and Greece

has been credit from the state-owned banks, as equity markets

were traditionally underdeveloped. In the course of 1980s and

1990s, the Italian and Greek financial sectors have been strongly

influenced by developments in European economic integration.

The European Commission set out to establish a Single European

Financial Area removing obstacles for the further integration of

national financial markets. As a result of the liberalizing initiatives

of the Commission, the heavy regulations of the financial sector

were removed. At the same time state-owned banks were largely

privatised during the 1990s.

In Greece liberalization of the financial market was launched later

than other OECD countries, but progressed rapidly in the second

half of the 1980s. The liberalizing initiative had five elements:

abolishment of capital movement restrictions; freeing of interest

rates; ending credit controls; allowing the merging of banking

with insurance activities; and the creation of a vast market in

government securities.55 In the next decade, the privatization of

state-owned banks accelerated and was largely completed by the

early 2000s. In Italy, privatization went hand in hand with

liberalization from the late 1980s. The implementation of the

Commissions‘ Second Banking Directive allowed the banking

system to move towards the universal bank model56, in which

deposits, loans and insurance are provided by all banks. By the

early 2000s the state has largely withdrawn from regulation and

ownership of both countries‘ banking sectors.

55 George Soumelis, "Greece: Reforming Financial Markets," OECD Observer, no. 193 (1995): 40-

41.

56 Mahmood Pradhan, "Privatization and the Development of Financial Markets in Italy," Finance and

Development 32, no. 4 (1995): 11.


71

As a consequence of the ‗opening up‘ of the sectors and the

removal of barriers to entry, new players appeared in the Italian

and Greek financial sectors. In Greece one observes an

aggressive expansion strategy from foreign banks entering the

market in the early 1990s.57 Similarly, from 1992 onwards the

entry flows of foreign banks in Italy increased dramatically

compared to the previous decades.58 As the next sub-section

documents, the liberalizing impetus in the financial sector was

followed by an expansion of equity-markets importance in the

national economy.

Figure 6. Stock Market‟s Importance in the economy 1995-

2006

10%

30%

50%

70%

90%

110%

130%

150%

170%

190%

1995 1997 1999 2001 2003 2005 2007

Year

Ma

rke

t C

ap

ita

lisa

tio

n a

s %

GD

P

DE

GR

IT

UK

57 Pagoulatos, Greece's New Political Economy: State, Finance, and Growth from Postwar to E.M.U.

58 Silvia Magri, Alessandra Mori, and Paola Rossi, "The Entry and the Activity Level of Foreign Banks

in Italy: An Analysis of the Determinants," Journal of Banking and Finance 29, no. 5 (2005): 1298.


72

Source: World Federation of Exchanges, available at: http://www.world-exchanges.org/statistics/ annual (accessed 25 January 2010).

5.2. Stock Markets Importance in the Economy

Stock markets experienced an unprecedented expansion during

the 1990s and their importance to the national economy has

undoubtedly increased in both Italy and Greece. The available

data on stock market capitalisation document this change (Figure

6).

Admittedly, market capitalisation figures are influenced by the

stock markets bubble in the late 1990s (hence the huge spike in

1999 where Greece approached British levels). However, even in

this diagram one may observe that after the deflation of the

bubble, the levels of market capitalisation settled at a higher

plateau than the one from which they started. In 1995 market

capitalization stood at around 20 per cent of GDP across both

countries. By 2006 it has surpassed 50 per cent in Italy and was

well over 80 per cent of GDP in Greece.

Table 3. Number of Listed Firms in Stock Market 1990-

2007 1990 1998 2007 %Δ 1990-2007 %Δ 1998-

2007

DE N/A 662 866 N/A 30.82%

GR 140 229 283 102.14% 23.58%

IT 220 243 307 39.55% 26.34%

UK 2.559 2.423 3.307 29.23% 36.48%

Source: World Federation of Exchanges, available at: http://www.world-exchanges.org/statistics/ annual (accessed 25 January 2010).

A complementary statistic is the number of listed firms, showing

a very high increase (Table 3). The two exhibits warrant the

conclusion that firms‘ reliance on equity-based funding has

increased in importance across both South European countries

(especially in Greece). Moreover, they show that equity markets‘

http://www.world-exchanges.org/statistics/%20annual





73

importance increased also for the CME paradigm Germany, which

also moved towards LME levels.

5.3. Minority Shareholder Protection

A major turning point in Italian corporate governance has been

the passage of the Draghi Law in 1998. The changes introduced

involved inter alia an increase in the regulatory protection

afforded to minority shareholders, a change in the auditing

system and also a change in takeover bidding rules.59 The

mechanism that led to this institutional change dwells on a

coalitional web between a ―transparency coalition‖ (investors and

workers), a reformist-minded bureaucratic elite and a left-party

government.60 To our interest is that this monumental legal

change moved Italy from the lowest score on the index of

minority shareholder protection to the same score as the British

LME (Table 4).

Table 4. Minority Shareholder Protection Index (anti-

director rights) 1993-2002 1993 1994 1995 1996 1997

DE 2 2 2 2 2 GR 2 2 3 3 3 IT 1 1 1 1 1 UK 5 5 5 5 5

1998 1999 2000 2001 2002

DE 3 3 3 3 3 GR 3 3 3 3 3

IT 4 5 5 5 5 UK 5 5 5 5 5

Source: Pagano & Volpin, Political Economy of Corporate Governance, 2005, Data Appendix, available at: http://www.csef.it/pagano/pv_aer_data_appendix.pdf

59 Pepper Culpepper, "Eppure, Non Si Muove: Legal Change, Institutional Stability and Italian

Corporate Governance," West European Politics 30, no. 4 (2007): 790.

60 Richard Deeg, "Remaking Italian Capitalism? The Politics of Corporate Governance Reform," West

European Politics 28, no. 3 (2005): 521-48.

http://www.csef.it/pagano/pv_aer_data_appendix.pdf


74

The above indicator documents the tendency towards

liberalization of the corporate governance system across

countries. While this change has been monumental in Italy, even

in Greece there is an increase towards British/LME levels. The

change in the level of minority shareholder protection in Greece

around 1994 and 1995 coincides with changes in the regulatory

framework. They followed from the transposition of the

Commission‘s Second Banking Directive and sought to harmonize

surveillance of securities markets, thereby promoting market

transparency and investors protection.61 Interestingly, minority

shareholder protection also increased in Germany documenting a

liberalizing tendency even within the CME paradigm case. This is

in line with other studies‘ findings on German corporate

governance system, marking the country‘s rapid move towards

the LME direction.62

5.4. Concluding Remarks

The discussion so far has provided evidence indicating that

financial and corporate governance systems in Italy and Greece

are taking on LME characteristics. On the one hand, the change

towards a liberal market model of corporate governance is more

pronounced in Italy, where legal changes have increased the

protection of minority shareholders. On the other hand, the shift

towards equity-based funding is more pronounced in Greece, with

increased reliance of firms on ―impatient capital‖. Finally, the

liberalizing initiatives of the EU had a common impact on both

countries‘ financial markets, which were also privatised.

Despite the above evidence, the conclusion on increased

liberalization needs to be qualified. The general argument from

the above analysis is there is a move towards the Liberal Market

Model in the institutional sphere of finance/corporate governance.

This does not mean that the institutional sphere has fully become

LME-like. Instead, it is prudent to note here as well, that there

61 Soumelis, "Greece: Reforming Financial Markets," 41.

62 Christel Lane, "Changes in Corporate Governance of German Corporations: Convergence to the

Anglo-American Model?," Competition & Change 7, no. 2-3 (2003).


75

are many residuals of more hybrid character. In Greece corporate

ownership remains concentrated and corporate governance

family-based.63 In Italy, while change in formal (legal) institutions

was indeed geared towards the liberal market model, actual

practice remained attached to concentrated ownership.64

6. Conclusion: Hybridization and the Political Economy

The VoC strand in the broader Comparative Political Economy

literature generated interesting insights, challenged proponents of

an imminent convergence to a single model of capitalism, and

provided counterarguments to a simplistic understanding of

globalization. As evidenced above, the VoC framework also

implied a ―dual convergence‖ thesis. This article sought to assess

the plausibility of the thesis against two ―hard‖ cases: Italy and

Greece. If the dual convergence thesis was plausible, then we

would expect to see the critical institutional spheres moving

uniformly to one direction (CME or LME).

The review of changes in the relevant institutional variables

generated interesting findings. On the one hand, there are signs

of greater coordination in the industrial relations systems of both

countries. On the other hand, the systems of finance/corporate

governance has acquired increasingly liberal market

characteristics. Thereby, the above analysis casts doubt on the

dual convergence thesis, as neither case moves uniformly

towards the LME or CME direction. Admittedly, both countries‘

institutional realms there are many idiosyncratic residuals from a

more ―mixed‖ type of capitalism, but these are compatible with

the conclusion of increased hybridization.

The analysis substantiated a core insight: institutional spheres

within the same country may be changing in opposite directions.

A more general implication is that delineating the overall direction

63 Theocharis Papadopoulos, "Corporate Governance in Greece and Its Political Determinants," in 4th

Hellenic Observatory PhD Symposium (London: London School of Economics, 2009).

64 Culpepper, "Eppure, Non Si Muove: Legal Change, Institutional Stability and Italian Corporate

Governance."


76

of change in a country‘s political economy is an arduous task.

This is because one cannot really quantify the extent of change

within institutional realms (i.e. how much CME or LME?).

Therefore, the only conclusion one may prudently draw is that,

for the period examined, the hybrid character of Italy and Greece

was exacerbated.

The observed divergence in those realms is less likely to confer

on the countries any comparative advantage of the CME or the

LME types. The divergence aggravates the ―non-

complementarities‖ observed in ―hybrid‖ or ―mixed‖ market

economies and is unlikely to increase their efficiency. Moreover,

these developments may even destroy previous capacities. For

example, the state ownership of the financial system was used in

the past along a ―developmental state‖ pattern to steer economic

activity. But the privatization and liberalization of the system will

deprive states of this option in the future.

The extent to which these findings challenge the very idea of

complementarities a la VoC is perhaps more debatable. It

depends largely on what kind of measure one takes for ―high

economic performance‖. If the measure of economic performance

is economic growth rates then Greece‘s performance has been

consistently among the two highest in EU15 from the mid-1990s

until the mid-2000s. This can possibly be attributed to a ―catch-

up effect‖. But it could also knock down the idea of

complementarities, because high economic growth is not

expected from an institutionally incoherent case, especially when

its hybrid character intensifies.In the same period Italy‘s

economic growth has been less impressive. But if the measure of

economic performance is ―world‘s export shares‖ then Italy has

performed exceptionally well in the last two decades, specialising

on luxury goods. On that measure Greece‘s performance is much

less impressive. But Italy‘s excellent export performance poses an

intriguing empirical puzzle for VoC theory, given that Italy lacks

CME-type and LME-type complementarities.

While only two institutional spheres were examined here, one

could also contemplate implications from wider changes for the


77

whole political economy. On the welfare regime, the residual

character was traditionally complemented with a strong family

cushion that provided inter alia childcare, unemployment

insurance and elderly care. The process of de-familialization

observed in Southern Europe, without symmetrical extension of

the welfare state, is likely to be unsustainable in the future.65 In

the labour market realm, the strict employment protection

legislation was complementary with a flexible segment of informal

employment.66 The prospect of the relaxation of employment

protection strictness, without improvements in unemployment

insurance, is likely to increase precariousness and insecurity in

Southern European economies.

Finally, in terms of comparative advantage in the global economy,

Greece and Italy seem to be trapped between a rock and a hard

place. On the one hand, both Greece and Italy have relatively

high labour costs and are therefore unable to be as price-

competitive as, for example, CEE countries. Moreover, the option

of currency devaluation to improve export competitiveness is no

longer available within then EMU zone. On the other hand, Greece

– and to a much lesser extent Italy – will find it difficult to

compete on the basis of product-quality or innovation. That is

because they lack an efficient skill formation system like the

German one. Overall, the future looks rather dim for both

countries, perhaps even more so in the context of a deepening

global economic and financial crisis.

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